The borrowers falling under any or more of the “Facilities” (see below) are eligible under Ex-gratia Scheme. However, such facilities need to satisfy the following conditions:

• Such borrower shall not have sanctioned limit or the outstanding amount exceeding Rs. 2 (two) crores in aggregate which ever is higher with all the lending institutions as on 29^th February 2020. That is, the sum of borrowings of such a borrower from specified loan accounts with the lending institution providing relief and borrowings other than that with all other eligible lending Institutions shall also be taken into account while arriving at aggregate exposure of Rs. 2 Crores. (For computation of the borrowing cap, see further FAQs below.)
• Such an eligible category loan account should be standard as on 29^th February 2020.
• Whether such borrower availed complete moratorium, partial moratorium, or did not avail any moratorium benefit in respect of such eligible category loan account is irrelevant for the purpose of extending benefit under the Ex-gratia Scheme.

No. The ex gratia relief will be credited to the account of all eligible borrowers without any requirement to apply.

Individual banks/ lending institutions will finalise the list of eligible borrower for the relief based on the GOI guidelines.

Crop loans and tractor loans etc. are agriculture and allied activities loans and are not part of the eight segments / classes eligible under the scheme.

Automobile loans including two-wheeler loans are eligible under the scheme.

This scheme is limited only to the borrowers falling under the specified category loan accounts, classified as standard and having an aggregate exposure of not exceeding Rupees Two Crores as on February 29, 2020. Therefore, loans disbursed after 1^st March 2020 will not qualify for the scheme.

Loans to non- MSME for business purpose is not falling under any eligible category of Facilities, and hence not covered under the Scheme. There were some issues related to traders (both retailer and wholesalers) as June 2017 Office Memorandum of MSME Ministry mentioned eight activities including wholesale and retail trade “would not be included in the manufacture or production of goods or providing or rendering of services in accordance with section 7 of the Micro, Small and Medium Enterprise Development Act, 2006.” In other words, wholesale and retail trade will not be categorised as MSME, thus would make things difficult for these businesses to avail benefit under the Scheme. The Government may give a clarification as most of such borrowers falling under the said category would be impacted.

The borrower must be classified as an MSME on 29^th February 2020 irrespective of the classification under the new definition. Further, it is recommended that in case the borrower continues to be classified as an MSME, it may submit its proof of Udyam registration to the lending institution. A declaration from the borrower should also suffice.

Loan against property (LAP) is a market term, implying the nature of the security in case of the loan. For the purpose of determining whether the loan is an eligible facility or not, we are not concerned with the nature of the collateral or security. We are concerned with the end-use of the money. Hence, a LAP loan may be a consumption loan, or a business loan to an MSME, or a personal loan to a professional. Therefore, merely because the loan is a LAP, we cannot judge whether it is a qualifying facility or not.

In case  a LAP loan is given other than 8 eligible categories/ facilities mentioned above e.g. investment in equity shares of company, purchase of Agriculture Land, Land etc. the same shall  not qualify.

Loans given by Fintech entities or Micro Finance Institutions (MFI) may qualify under the scheme as they may be classified as specified loans under ‘consumption loans’ category. Again loans by such companies given for activities not provided under 8 categories/ facilities shall not be covered.

In our view, the Scheme is simply a limited relief on compound interest. The interest differential as computed under the Scheme is simply credited to the account of the borrower by the 05^th November 2020 as specified. Crediting the amount does not mean any actual cash transfer. The interest differential is treated as an amount paid by the borrower. The question of any refund will arise only if the outstanding amount by the borrower is less than the amount of the differential, or the account is fully squared off.

The payment to the specified loan accounts of eligible borrowers is mandatory under the Scheme. The language of Ex-gratia Scheme clearly provides that the lending institutions shall credit the difference between simple interest and compound interest for a period between 1^st March 2020 to 31^st August 2020 in specified loan accounts of eligible borrowers.

The applicability of the scheme is not optional. As per the Government of India  notification, all lending institutions are advised to be guided by the provisions of the Scheme and take necessary action within the stipulated timeline. Hence, the lending institution is obligated to extend the benefit of the scheme to all the eligible borrowers. See below for the meaning of “eligible borrowers.”

The loans falling under any of the categories mentioned below are ‘specified loan accounts’ under this Ex-gratia Scheme.

• MSME loans
• Education loans
• Consumer durable loans
• Credit Card Dues
• Automobile loans
• Personal loans to professionals
• Consumption loans
• Housing Loans

The following is the list of the lenders have to comply with the operational guidelines of the scheme (“Lending Institutions”):

• Banking Companies
• Public Sector Banks (PSB)
• Co-operative Banks – Urban Co-operative Banks, or a State Co-operative Bank, or a District Co-operative Bank
• Regional Rural Banks (RRB)
• All India Financial Institutions
• Non-Banking Financial Companies registered with the RBI
• Non-Banking Finance Company being a Micro Finance Institution, also a member of Self-Regulatory Organisation (SRO) registered with RBI
• Housing Finance Companies registered with RBI, or National Housing Bank

Lending institutions are to assess this on the basis of information available with them as well as information accessible from credit bureaus.

No. Non fund based limits will not be included for arriving at the eligibility.

Yes, the accounts classified as SMA-0, SMA-1 and SMA-2 as on 29^th February 2020 are eligible for the relief package.

No. The loan should not be a “Non Performing Asset” (NPA) as on 29^th February 2020.

Yes, provided that the sanctioned or outstanding amounts do not exceed Rs. 2 Cr whichever is higher. The outstanding as on 29^th February 2020 shall be the reference amount for calculating the differential interest amount.

• In respect of Education loans, Housing loans, Automobile loans, Personal loans to professionals and Consumption loans, the rate of interest to be applied for calculating the differential interest component shall be the contracted rate as specified in loan agreements/ documentation applicable as on 29^th February 2020.
• In respect of consumer durable loans, the rate of interest to be applied for calculating the differential interest component shall be the contracted rate as specified in loan agreements/ documentation. In case where no interest is being charged on equated monthly instalments for a specified period, for the purpose of relief, interest may be applied at MCLR/ Base rate as the case may
• MSME:
• In respect of term loans / Demand Loan, the rate of interest for the purpose of calculating the differential will be the contracted rate as specified in the loan agreements/ documentation applicable as on 29^th February 2020. In respect of Cash Credit/ Overdraft, the rate of interest for the purpose of calculating the differential shall be the rate of interest prevailing as on 29^th February 2020.
• Credit Cards
• Eligibility: The Credit Card outstanding (i.e. settled amount) in the account as  on 29^th February 2020 will be the reference amount. Any debits/ credits which are not reflected in the account will not be eligible/ will be excluded.RoI (%): The rate of interest shall be the Weighted Average Lending Rate (WALR) charged by the card issuers for transactions financed on EMI basis from its customers during the period from 1st March 2020 to 31st August 2020.

No. Ex-gratia will not be paid on those credit cards where balance is in “credit” as on 29^th February 2020.

The contracted rate/ interest rate prevailing as on 29^th February 2020 which is considered for calculating the interest differential will exclude any penalties or any penal rate of interest applied in the account.

The outstanding as on 29^th February 2020 will be the reference amount for calculating the differential. Any repayment / credits subsequent from 1^st March 2020 to 31^st August 2020 shall be ignored for the purpose of calculation.

Simple interest for the period will be calculated based on daily outstanding as at end of the day at rate of interest prevailing as on 29^th February 2020. Compounding of interest shall be at monthly rests.

The period to be reckoned for crediting difference between compound interest and Simple interest by the Lending Institutions would be from 1^st March 2020 to 31^st August 2020  (six months/ 184 days).

In our view, the condition for eligibility for the benefit is that the borrower is standard as on the reference date with the lending Institution eligible for the relief. Additionally, we need to aggregate the facilities enjoyed by the borrower with other lending institutions. We do not have to read any further conditions. That is, if the borrower is not standard with a particular lending institution, then such lending institution shall not grant the benefit to the borrower. However, the lending institution with which the borrower is standard should not be precluded from granting the benefit of the Scheme.

The subsequent movement of the NPA to standard will not make the account eligible under the scheme. As per the eligibility conditions, the loan account must be classified as standard as on 29^th February 2020

The fact that a specified loan account has been securitized or subject to Direct Assignment does not deny the borrower from availing the benefit under this Scheme. As per our view, the borrower is not a party to the Securitisation or Direct Assignment and he is eligible to relief.

The scheme provides that the exercise of crediting the amount under the scheme shall be completed by respective lending institutions on or before 05^th November 2020.

Therefore, the amount under this Ex-gratia scheme has to be credited to the borrower’s account by the lending institutions within the stipulated time.

Each lending Institution will lodge consolidated claim on/ before 15^th December 2020. The claim shall be submitted along with the required data as per the template/ format provided by the Nodal Cell of SBI.

The following procedures need to be complied by all the lending institutions falling under the scheme.

• The reimbursement claim amount should be pre-audited by a statutory auditor of the lending institution.
• A certificate by an auditor shall be attached with the claim.

Yes. Eligible accounts foreclosed during the said period are covered under the scheme.

The Government intends to pass on the benefit of the Scheme through the Lending Institutions including all NBFCs involved in lending to the specified category of borrowers irrespective of the asset size of the NBFCs.

The ex gratia scheme includes loans originated by two or more Lending Institutions. The objective of the scheme is to pass the benefit of the scheme to eligible borrowers. Therefore, in case the borrower is eligible, the benefit under the scheme shall be extended taking blended rate of interest as the reference rate for differential computation of CI and SI during the moratorium period. The rates of interest charged by the respective lenders may be different inter-se; however, the benefit of interest differential will be given to the borrower based on the blended interest rate.

For accounts closed during the said period, the period for crediting would be from 1^st March 2020 and restricted to the date of closure of such account.

The answer to this question is far from clear. On one hand, it is possible to contend that most of the gold loans are, in fact, consumption loans. What should matter for the purpose of the Scheme is the end use of the loan and not the nature of the collateral.  MoF FAQs have specifically excluded loans taken for investment in financial assets. Gold is not one of the financial assets referred to in the FAQs. However, the purpose of loan taken against Gold is to be seen. If it falls under the above specified 8 eligible categories/ facilities, it should be covered.

The claim once computed and made is credit to the account of customer and debited to ‘Claim receivable from Central Government’.

The borrower account must fall in the category of specified loan account as on 29^th February 2020. For example, a loan account was classified as an MSME as on 29^th February 2020 and later on a subsequent change in definition has moved it out of the category of MSME, the benefit under the scheme shall still be given to the said borrower account, subject to fulfilment of the eligibility conditions.

There is no clear timeline for payment by Nodal Agency to Eligible lenders.

Question does not arise as CICs are intended to provide financial support to “group companies only.

As clarified by the MoF in its FAQs, loans against fixed deposits [including Foreign Currency Non-Resident (Bank) {(FCNR(B)} account, bonds and other interest bearing instruments], and shares etc., and loans given for investment in financial assets (shares, debentures etc.) are not eligible for coverage under the scheme.

Since the eligibility is to be determined as on 29^th February 2020, the fact that the loan account has been closed should not deprive the borrower of the benefit under the Scheme.

No. There is no such distinction. As long as the loan is covered by the list of “facilities” above, it does not matter whether the loan is secured or unsecured.

No, Lease entities included in the list of Eligible Lending Institutions

As per the MoF notification dated 23.10.2020, NBFCs and HFCs registered with RBI are eligible for the scheme

The higher of the two shall be aggregated.

Yes, the idea of aggregation of all facilities is that the benefit is available only to small borrowers.

The claims shall be submitted to the designated officer (s) /cell   at State Bank of India (SBI). The SBI shall act as a nodal agency of the Central Government for settlement of all the claims of lending institutions.

The amount outstanding as on 29^th Feb would include all amounts showing as outstanding from the borrower. If the overdue interest or any other charges have been debited to the loan account, and are shown as a part of the outstanding, in the loan account of the borrower, in our view, the same should form part of the reference amount, both for reckoning the limit of Rs 2 crores, as also for computing the interest differential.

Each lending institution was required to put in place a grievance redressal mechanism for eligible borrowers within one week from date of issuance of ex-gratia guidelines i.e. latest by 30^th October 2020.

^{The scheme does not require the lenders to develop a separate mechanism for redressal of grievances arising due to the scheme. The same may be a part of the existing grievance redressal mechanism of the lender. However, the scheme states that the lenders can consider communication dated 1.10.2020 from the Indian Banks’ Association (IBA) in respect of the resolution framework for COVID-19 related stress.}

The said communication form the IBA lays down the following:

• A web-based platform shall be developed for automatic lodgement and handling of grievances. The grievances may be received on the said portal/branch office of the lender. Grievances received at the branch should also be fed into the portal and the system shall generate a digital receipt for the customer.
• The grievances should be directly handled at zonal/circle level based on the hierarchical structure of the lender. Preliminary remarks should be provided to the customer within a maximum of 72 hours by the Nodal Officer and final response should be provided within 7 working days.
• Escalation matrix may be provided separately for different kinds of loans such as for retail and commercial banking customers. The grievance related to commercial loans may be handled at a higher level.
• The framework should provide for re-opening of the grievance if the customer is not satisfied by the response.
• A dashboard on the status of grievances viz. no. of grievances received, pending status etc. should also be made available to controllers/regulators for close monitoring.

The scheme does not mandate compliance of the guidelines from the IBA. However, the same may be mandatory for the banks who are members of the IBA (owing to their membership) and recommendatory for other lending institutions.

Grievances of lending institutions shall be resolved through designated cell at State Bank of India (SBI) in consultation with the Ministry of Finance, GoI. However in respect to the issues/queries related to interpretation of the scheme, the decision of GoI shall be final.

The payment of loan instalment interval i.e. either monthly, semi-annually or quarterly will have no effect on ex-gratia payment computation if the interest rate is compounded with monthly resets.

If the terms of the loan are clear that the interest shall be simple interest, then the benefit under the Scheme is not even called for.

Recomputing the EMIs will involve a substantial hassle. Therefore, ideally, the Lender may either refund the amount to the Borrower or based on borrower’s concurrence, keep the differential as a security deposit/ prepayment for future payments.

No, there’s no need for the Borrower’s loan agreement to be amended.

Inter Corporate Deposits made by the lending Institutions to MSMEs shall qualify as specified loan accounts under the Scheme. Any other ICD to non-MSME entity shall not be eligible under scheme.

Yes, the Rs. 2 crore limit shall be considered across all the lending institutions.

Consumptions loans seems to be a broad category.It may rather be qualified by exceptions:

• The loan is not a business loan, or a loan for a profession, occupation or calling
• The loan is not for purchase of any financial assets such as shares
• The loan is not for purchase of an asset that cannot be regarded as personal asset
• The loan is granted to a natural person or an HUF, that is, not to artificial entities

Loans without any specific purpose, granted to consumers, will also qualify as consumption loans.

‘Housing Finance’ shall mean financing, for purchase/ construction/ reconstruction/ renovation/ repairs of residential dwelling units, which includes all other loans including those given for furnishing dwelling units, loans given against mortgage of property for any purpose other than buying/ construction of new dwelling units/ or renovation of the existing dwelling units. Even a loan to a builder for construction counts as a housing loan.

Loans given for educational purposes to a student mean ‘Educational Loans’.

Typically, the loans have a moratorium until after a certain time of completion of the studies. Hence, there may not be any repayment due during the Reference Period.However, the scheme grants the benefit for such loans too.

No, loans given to education institutes will not be covered under the head ‘education loans’.

In technical parlance, the word “profession” has a narrow meaning. It mostly means those regulated professions where there is a professional body for the purpose of a recognised profession which entitles the professional to practice the same. Examples may be doctors, chartered accountants, architects, etc. However, in the context of the Scheme, it appears that the word “profession” has been used in the wider sense of a profession, vocation or calling, not being in the nature of business. Such a wide meaning is prevalent under taxation laws for recognition of income under the head “business” or “profession”. There does not seem to be sufficient reason for restricting the meaning of the word “profession” for the purpose of the Scheme to only regulated professions.

Hence, there are two types of loans – business loans, and personal loans. Business loans will qualify for the Scheme if the same is extended to MSMEs. Personal loans, to entities other than those engaged in businesses, may either be a personal loan given to a professional, or a consumption loan to a salaried employee. In our view, both the latter categories will qualify.

A consumer durable loan is typically for purchase of durables used for personal purposes. For example, TV, washing machine, technological gadgets. A loan for buying a hand phone, laptop, etc. may also qualify.

A credit card is a revolving line of credit used by swiping of a card.

• A credit card is an on-tap credit facility loaded onto an instrument which can be used by the cardholder to discharge obligations to a third-party, on credit.
• While older definitions talk of an actual ‘card’, taking a broader view of the regulations would imply that apps, downloadable or virtual cards also fall under the same regulatory framework as conventional credit cards.
• Hence, a card does not have t necessarily mean a plastic card, if a revolving line of credit is extended, which is usable by swiping a card or by using an app, it should amount to a credit card.

The expression auto loans is typically used in context of loans for motor vehicles, namely,

• Cars
• Two wheelers
• Commercial vehicles

Hence, as long as the item for which loan given is for a motor vehicle, it should qualify as an auto loan.

Usually, the expression auto loan should mean a loan for purchase of vehicle, whether new or old. However, if the loan is given for security of a motor Vehicle, it should fulfil the eligibility of 8 criteria mentioned in the notification. The same should relate to purpose and not to collateral.

Apparently, auto loan renting schemes will not qualify.

Lenders have to consider that the loan account should fall under the specified loan category based on the end use of the loan as well as the type of borrower. The collateral securing such loan is irrelevant.

The fact that retail and wholesale traders are excluded from the definition of MSME would imply that they shall not fall under the category of ‘MSME loans’. However, in case the end use of the loan is for consumption by the trader, the same can qualify as ‘consumption loans’.

The loan given to a practicing CA or CS (for purposes other than business) shall qualify as a personal loan to professionals. Further, a loan given to a practising CA/CS firm for business purposes can be classified as ‘MSME loan’ provided the firm is registered as an MSME or a declaration to that effect is provided.

The Transferor Lender will be able to give credit only upto the date of the loan transfer. Transferee Lender will not give any credit.

No, this Ex-gratia scheme is in the form of waiver of interest on interest in the specified loan account category, irrespective of whether moratorium benefit was extended/availed completely, partially or not availed at all on such loan accounts.

Therefore, all the eligible borrowers in specified loan accounts will receive payment under the Scheme from their respective lending institution. The credit amount would be such part of interest which would have been chargeable by the lending institutions on the accrued interest component during the six months deferment period from 29.02.2020 till 31.08.2020. That is the difference between the Compound interest and Simple Interest on the outstanding amount will be payable by the lending institution which shall be reimbursed to them by the Government.

Illustration:

Outstanding loan amount in the specified loan account as on 29.02.2020 was Rs. 1,00,000 (Rupees One Lakh).

Interest Rate as applicable on such a loan account as on 29.02.2020 is taken @ 10% annualised rate, compounded monthly.

Therefore, the balance 105.33/- shall be credited to the specified account of the borrower by the lending institution.

Since the eligibility is to be determined as on 29.02.2020, the fact that the loan account has been closed should not deprive the borrower of the benefit under the Scheme.

Such borrowers are eligible for refund of differential interest from 01.03.2020 upto the date of closure of account.

Illustration:

The outstanding amount in a specified loan account as on 29.02.2020 is Rs. 1,00,000 (Rs. One Lakhs Only). The borrower paid all the dues towards the loan amount by 30.04. 2020. The contracted annualised rate compounded monthly as on 29.02.2020 is at 10%.

The ex-gratia payment as under the scheme guidelines should be as follows:

Therefore, the borrower shall be entitled to Rs. 6.94 under the ex-gratia scheme.

It will be credited to the borrower’s savings/ current account. If no such account is maintained by the borrower with the lending institution, the borrower can advise the lending institution the details of the account in other banks where the amount can be credited /remitted to.

If the loan has been closed during the reference period, and there are pending charges, the treatment shall be the same as a foreclosed account. Accordingly, the credit for differential interest amount can be adjusted with the overdues.

The interest shall be computed for the broken period by converting the number of days into a fraction of the month. The same can be done by dividing the number of days by 30 (considering a month has 30 days on average).

Yes, the benefit shall still be given to the borrower based on the fact that the loan account was eligible as on 29.02.2020.

The borrower account must fall in the category of specified loan account as on 29.02.2020. For example, a loan account was classified as an MSME as on 29.02.2020 and later on a subsequent change in definition has moved it out of the category of MSME, the benefit under the scheme shall still be given to the said borrower account, subject to fulfilment of the eligibility conditions.

The borrower must be classified as an MSME on 29.02.2020 irrespective of the classification under the new definition. Further, it is recommended that in case the borrower continues to be classified as an MSME, it may submit its proof of Udyam registration to the lending institution.

As per the eligibility conditions, the lender has to ensure that the borrower account was a classified as MSME loan as on 29.02.2020. Further, on the said reference date, obtaining udhyam registration was not mandatory for the purpose of MSME classification. However, a declaration may be sought from the borrower in this regard that they were eligible to be classified as an MSME on such reference date.

Yes. Loans for consumption purposes (e.g., social ceremonies, personal expenditure, etc.) are also eligible for coverage under the scheme, besides other specified categories of loans like consumer durables, automobiles, education, credit card dues, housing and personal loans to professionals.

If the terms of the loan are clear that the interest shall be simple interest, then the benefit under the Scheme is not available.

In the cases where an IRR or effective rate is charged from the borrower, the EMI computation already factors the interest compounded over the loan tenure. In case the borrower has availed moratorium, the amount is accrued but not payable. Therefore, interest charged over the interest component of the amount accrued during moratorium period shall be the ex-gratia amount and the same will be credited to borrowers account. In case the borrower has not availed moratorium, the borrower pays the amount on its accrual. The EMI computation however, already considered the compounding effect of the interest. Hence, the ex-gratia amount shall be the interest compounded during the Reference Period.

The RBI specifically instructs the lenders to disclose an annualised rate of interest, irrespective of the payment terms. The annualised rate is the IRR which is the contractual term agreed between the parties. Hence, the Scheme benefit shall be applicable and the computation of simple interest and compound interest shall be based on such IRR.

In case the contractual rate is NIL or 0%, there is no question of granting any benefit to the borrower, given that the borrower has not paid any interest at all. However, in case the loan account falls under the category of consumer durable loan and no interest is charged for a specified period, then lender’s base rate or marginal cost of funds based Lending Rate (MCLR) whichever is applicable shall be considered as on 29.02.2020 to calculate the differential amount of interest. [Updated as of 02.11.2020]

The Scheme specifically mentions the treatment in case of consumer durable loans where there is no interest charged by the lender for a specified period. However, in case simple interest has been charged that would essentially mean that the lender has forgone its interest over the accrued interest. Hence, the same shall not be eligible for benefit under the scheme.

Yes, the borrower shall be eligible for ex-gratia payment in both of the scenarios mentioned above. The Ex-gratia scheme is applicable on all the specified loan accounts, whether moratorium benefit is completely availed, or partially availed, or not availed at all.

All the payments made by such a borrower towards its eligible loan account between 01.03.2020 and 31.08.2020 will be ignored. For the purpose of uniformity, the difference between compound interest and simple interest is to be reckoned at an outstanding amount as on 29.02.2020 for a period of six months.

Yes, all the specified loan accounts of eligible borrowers are entitled to ex gratia payment under the Ex-gratia Scheme.

Yes. The ex-gratia scheme’s objective is to pass the differential benefit of compound interest and simple interest in specified loan accounts by crediting such loan accounts of eligible borrowers.

All the over dues charges and other penal interest shall continue to apply on all borrowers as may be applicable.